It's Almost 2026. How's the Economy?

Key Takeaways

Tariffs imposed in 2025 had milder-than-expected economic effects on inflation and manufacturing.
The U.S. labor market is contracting, with rising unemployment and AI contributing to job insecurity.
Despite job market challenges, the U.S. stock market boomed, largely driven by seven major tech companies.
Economic inequality deepened as high-net-worth individuals, bolstered by stock gains, drove consumer spending.
Key economic questions for 2026 include housing, interest rates, and demographic shifts.

Trump administration tariffs, announced in spring 2025, aimed to boost U.S. manufacturing but faced fears of increased inflation and economic slowdown.
Eight months later, the actual effects were milder than expected; effective tariff rates increased, but price hikes were less significant due to rollbacks, exemptions, and supply chain rerouting through Southeast Asian countries.
The objective of bringing manufacturing jobs back to the U.S. was not met, with continued job loss attributed to long factory lead times and uncertainty surrounding future tariffs.
Inflation decreased to 2.7% in November from 3% in September, and the Federal Reserve cut interest rates three times, indicating less concern about inflation despite higher consumer prices than before the tariffs.

The unemployment rate rose to 4.6%, the highest in four years, with official statistics potentially overstating hiring by as much as 60,000 jobs per month.
The labor market is contracting; healthcare and social assistance are the only growing sectors, while other areas are shrinking, possibly due to companies leveraging AI for efficiency.
Employers are increasingly citing AI as a reason for layoffs, fueling growing distrust between employees and employers, with workers feeling less secure about their jobs.
Despite low overall unemployment, the job market feels less robust than a few years ago, with fewer job offers, raises, and opportunities for advancement.

Recent graduates are facing a particularly weak job market, with increased unemployment among the youngest workers.
This weak entry into the job market can have long-term negative effects on graduates' future earnings and career progression.
The job application process has become discouraging due to automation, including one-way video interviews where applicants record responses without direct human interaction.
This automated process contributes to a feeling of a de-personalized and soulless experience for new job seekers.

Despite labor market challenges, U.S. stock markets have been a bright spot, setting numerous record highs over the past three years.
The NASDAQ is up 15% this year, largely driven by seven major tech companies, including NVIDIA, which reached a $5 trillion valuation.
A significant portion of economic activity and consumer spending is driven by a small group of high-net-worth individuals whose confidence is bolstered by strong stock market performance.
This trend contributes to increased economic resilience but also exacerbates inequality, evidenced by increased activity in the high-end housing market and a 'premitization' of goods and services.

Key economic questions for 2026 include the future of the housing market and interest rates.
The potential impact of growing economic inequality within different financial tiers remains a significant area of focus.
A major question for the upcoming year is the economic impact of declining birth rates, marriage rates, and nuclear family formation on consumer spending and overall life organization.